Malta's attractiveness - 2

This week's contribution continues where we left off last week. Last week I had written about a survey conducted by Ernst & Young on factors that attract foreign direct investment. That contribution had focused on the Europe-wide survey. This week I shall focus on the Malta Attractiveness Survey, which, as the report's title highlights, evidences Malta's small size but also the big opportunities that Malta presents.

The survey was carried out with 26 senior executives of foreign-owned companies based in Malta. Respondents were presented with a set of criteria that a company would consider when making an investment and were then asked to rate these criteria vis-à-vis Malta and whether they considered these criteria were relevant to their industry or otherwise.

It needs to be stated from the outset that, for these companies, Malta's attractiveness as a location for a company to retain, develop and expand activities has improved over the past year and is expected to improve over the next three years.

The reasons that were given for such an improved perception have been, among others, the stability of the political and economic situation over several years, the successful strategic repositioning of the company in line with the competitive advantages that Malta offers, and EU membership.

Those who feel that Malta's attractiveness has neither improved nor deteriorated have claimed that the Maltese economy is in transition and therefore one needs to suspend judgement for the moment. Those that have a negative perception have mentioned the high cost of transport and increased energy and labour costs.

In fact, it should be noted that Malta's major weakness is seen to be the transport costs. The fact that we are an island requires any company that invests here to make use of air and shipping links. Costs related to transport are mainly seen as unattractive, even if very relevant to their operation.

If this is really the only stumbling block as perceived by companies that have invested in Malta, then there may be scope for evaluating whether there can be specific aid to address this issue. On the other hand, one also needs to evaluate the extent to which transport costs impact on total costs.

Respondents were also asked to mention measures that could be adopted by the government to improve Malta's attractiveness. A myriad of items were mentioned, however some seem to be more pressing than others, having been mentioned by a significant proportion of the respondents.

Transport again hits the top of the list as the item that received most mentions was cargo handling charges and port charges. Let's face it, port reform should not just involve a change of the provider of the service but also a leap forward in the quality of the service and a reduction in costs.

In relation to air transport, the issue seems to be the tax that is paid on tickets for journeys originating in Malta.

Apart from transport issues, I judge three other items to be important because they will require us to address them soon but will have an impact in the long term.

The first is the cost of living adjustment. Respondents are keen to have these incorporated in the annual wage increases in order to establish a link with productivity. The second is the environment, while the third is public sector bureaucracy.

The solution to any of these issues is not easy and requires an open and honest discussion between the government, employers and civil society.

Another worrying feature of the results of the survey is that very few foreign-owned companies collaborate with local companies with the intention of clustering.

Clustering is known to represent a headache to Malta Enterprise and previously to the Institute for the Promotion of Small Enterprises. Given our economy's strong reliance on foreign direct investment, we should achieve a better multiplier effect of productive activities associated with such investment.

Where do Malta's strengths lie? It must be very satisfying to the policy makers of the last 20 years, who kept harping that Malta's only resource is our human resources and as such we need to invest heavily in education and training, to note that Malta's major strength has a lot to do with the good quality of human resources. The level of availability of human resources, the level of skills, the level of productivity, the level of English were all judged very positively by respondents. Added to these is a stable industrial relations environment and a stable social environment, which are both created by people.

Where does this lead us? Attractiveness of an investment location is very fickle because investors keep on comparing competing locations. So it is not enough to maintain the status quo, as otherwise competition will overtake us. It is not an issue that belongs only to the government or the business sector because Malta's attractiveness as a business location has a direct impact on our ability to generate economic wealth. I feel that the more debate there is on the issue the better it is - not so much to allocate blame, but rather to create an awareness that no one living in our country is exempt from giving his or her share to strengthen Malta's attractiveness to foreign investors.